Those hailing a return to the principals of Beveridge are forgetting about full employment

I reblogged this post about the Beveridge Report by Jules Birch a couple of days ago, and it reminded me of a recent column by Peter Oborne, in which he outlines how (in his view) incredibly successful the Coalition Government has been in the realm of social policy. This is one of the successes he mentions:

“Iain Duncan Smith’s achievement at the Department for Work and Pensions, in particular, has been monumental. He is returning social security to the arrangement envisaged by Sir William Beveridge in his famous 1944 White Paper.”

This may illicit hollow laughs all round, but it highlights something I have heard a lot over the last four years from people who like to talk about ‘something for nothing culture’ or ‘dependency’. These people say the welfare state should come with responsibilities – the responsibility to look for work (or jump through whatever hoops some bright spark at Policy Exchange or whichever the latest fashionable Thinktank may be can come up with). To ‘get back to Beveridge’ then we need more conditions attached, workfare, sanctions and jobseeker ‘contracts’ to ensure those responsibilities are enshrined.

What these people forget though is that alongside his proposals for the welfare state and the responsibility on individuals – or social service state  as Beveridge himself preferred – he also set out the responsibilities on government with regard to the economy which would ensure this social service state could function as designed. A prerequisite was full employment. Beveridge actually wrote three reports, although we only ever really talk about the first.

His second was entitled “Full Employment in a Free Society”. A summary of the report written by Beveridge himself has been reproduced here, and is quite an interesting read. His recommendations on economic policy are pretty far removed from those asking for a return to the principals of Beveridge today. He writes:

“The first condition of full employment is that total outlay [spending] should always be high enough to set up a demand for products of industry which cannot be satisfied without using the whole man-power of the country; only so can the number of vacant jobs be always as high or higher than the number of men looking for jobs…

…Who is to ensure that the first condition, or adequate total outlay at all time, is satisfied? The answer is that it must be made a responsibility of the State. No one else has the requisite powers; the condition will not get satisfied automatically. It must be a function of the State in future to ensure adequate total outlay and by consequence to protect its citizens against mass-unemployment, as definitely as it is now the function of the State to defend the citizens against attack from abroad and against robbery and violence at home.”

He then goes on to write about how governments should budget, rejecting balanced budget mantras by saying:

“What is the essence of the new budgetary policy required for full employment? It is, first, that the Budget becomes in the fullest sense a National Budget, designed to guide and influence and guide the activities of the whole nation, and not simply to raise taxes and spend them on the purposes of the Central Government. It is, second, that the Budget is made with reference to available man-power, not to money; that it becomes, in Mr Bevin’s phrase, a “human budget”.”

He then rights, which chimes quite strongly with some things we see today:

“To submit to unemployment or slums, or want, to let children grow hungry or the sick and old untended, for fear of increasing the internal national debt is to lose all sense of proportion”

Much as the Conservatives boast of ‘creating’ 1.75m new jobs and of returning the welfare state to the principals of Beveridge, the truth is they (and let’s face it the other parties too), have abandoned one of Beveridge’s key messages and full employment and where responsibility for its achievement and maintenance lie. Left to the market, the quality of job creation has been poor and still vastly short of what’s required.

Full employment, April fools and stupid Mr Gove

Here’s my weekly roundup of the best links from the last 7 days. The week started with George Osborne declaring his commitment to full employment. This is what some people thought of Osborne’s pledge, but full employment can be defined in different ways. Neil Wilson provides his definition here:

Full employment is when everybody has a job

Tuesday was April Fool’s Day, and Paul Bernal put out this post. It’s actually a pretty good satire that explains the issues a lot of lefties (me included) have with the Labour Party:

Why I’m rejoining the Labour Party

This week also marked the first anniversary of the Bedroom Tax. Here is Jules Birch’s ‘uncelebration’ of the day:

Many unhappy returns

There have been a couple of articles this week by people with a different (and more accurate) view on how the economy works, that have appeared in more ‘mainstream’ sources. First up, Peter Martin blogged on Labourlist about Ed Balls’ desire to run a budget surplus:

The economics of a budget surplus: Something to think about before making rash promises

And here’s one from Philip Pilkington writing in The Guardian about what he sees as the problem the left faces in trying to increase living standards at the same time as shrinking the importance of the financial sector:

The left needs a deft touch in tackling the financial sector’s dominance

Some more non-conventional perspectives now with another blog by Neil Wilson, countering the oft-heard question “How are you going to pay for it?”:

‘Taxation = Government Investment’ : Each Time, Every Time

And here’s another from Peter Martin on what gives our currency its value:

Want to make your business card worth something? Easy. Start a protection racket!

In this article by former financial regulator Bill Black, he explains how the knowledge to prevent the crisis was already available to us but was ignored:

Three Passages From Akerlof & Romer’s 1993 Article That Should Have Prevented The Crisis

Two more bits to finish. First up, a letter to David Cameron on why privatising the NHS is such a horrendous idea:

The best precis of why NHS (and other) privatisation is a Bad Thing

And finally, here’s a video that seems to be going down well with teachers – “Dear Mr Gove”


What a Good Economy Should Look Like

I came across this video earlier today and thought it was worth sharing. It’s an audio extract from a longer talk given in Italy by Warren Mosler, who is one of the founders of Modern Monetary Theory (in the same way some bands are big in Japan, Mosler is big in Italy!). Mosler describes in one minute what a good economy should look like, and in light of George Osborne’s announcement today of his ‘commitment’ to full employment, it seemed apt. Does his description sound remotely like what we have today? I think not! The full video and transcript are here.

What is Full Employment?

George Osborne gave a speech today in which he gave a commitment to achieving ‘full employment’. The trouble is, full employment means different things to different people. Osborne seems to think it means having the highest employment rate in the G7. We’re already 4th on that measure (which is I guess why he chose it), but is this a good measure? It looks at the proportion who are employed, but to know if we have ‘full employment’, don’t we need to know how many are ‘unemployed’?

Chris Giles already has a blog up today with the same name as this one, and he gives two other definitions to the one George Osborne is using. Post-war, full employment just meant everyone had a job who wanted one. For most of the 50s and 60s, this was indeed the case. As Robert Skidelsky says here:

“Between 1950 and 1973 unemployment averaged 2% and was always well under one million.”

2%! We’re supposed to be happy with 7% today. Of course at that time there were much fewer women in the workplace, but they weren’t classed as unemployed because more households could get by on one income back then.

The second definition Giles gives  I suppose you could say is the economist’s definition. That is called the NAIRU or the “non-accelerating inflation rate of unemployment” to give it its full name. Many (most even) economists believe that there is a trade-off between inflation and unemployment and that once unemployment falls below a certain level, inflation will start to accelerate. Ex Tory Chancellor Norman Lamont once said that unemployment was a price well worth paying to ensure inflation stayed low. The NAIRU in the UK is estimated at anywhere between 5 and 7%. This Guardian story gives a bit more detail:

“The Bank of England and the Office for Budget Responsibility (OBR) suggest that once the “equilibrium rate” for unemployment is reached, then full employment is achieved. The OBR said in its fiscal and outlook forecast, published at the same time of the budget, that unemployment would fall to its equilibrium rate in 2018.

The equilibrium rate is not fixed. In its February 2014 inflation report, the Bank of England said that the medium-term equilibrium unemployment rate was 6 to 6.5%, which means that unemployment remains 0.75 to 1.25% above this. The OBR said it judged that the long-term unemployment rate was 5.25% – with unemployment 1.75% above that. The bank says that the medium-term equilibrium unemployment rate will fall as demand recovers.”

So where does that leave use then? Full employment is either “the highest employment rate in the G7”, some technical, estimated rate believed to be the low-point at which inflation remains stable, or some loose (but much higher in some respects) definition of “everyone who wants a job has one”. I prefer the latter, but we could even extend this further and define it as “everyone who wants a job has one at a wage high enough to have a decent standard of living”. Wouldn’t that be something worthy of the name “full employment”?

I suspect George Osborne thinks he can get to his version of full employment by doing basically what he’s been doing, a bit of hand-waving while relying on the private sector to pick up with the help of rising levels of household debt. Which will be fine. Until it isn’t. Genuine full employment requires a much more active government than any of the main parties are currently willing to entertain. Here’s some further reading on how we could really get there.



“The moral case for welfare reform”

A few days ago the country’s most senior Catholic, Archbishop of Westminster Vincent Nichols raised some objections about the Government’s welfare reforms in comments to the Daily Telegraph. I don’t think we should pay attention particularly to what religious leaders say (about anything), but in this case, the Archbishop was merely stating the obvious. Basically, he said that the reforms were leaving some people destitute (they are), that the reforms are primarily about saving money (yes), and that the reforms are not working (depends on how you define ‘working’).

This seems to have upset David Cameron enough for him to ask the Telegraph for a right of reply. Here’s his article and he tries to answer the Archbishop with a moral argument. His argument is a textbook example of the conservative ‘strict father figure’ framing I’ve been banging on about recently. Here’s some extracts:

“First, our long-term economic plan for Britain is not just about doing what we can afford, it is also about doing what is right. Nowhere is that more true than in welfare. For me the moral case for welfare reform is every bit as important as making the numbers add up: building a country where people aren’t trapped in a cycle of dependency but are able to get on, stand on their own two feet and build a better life for themselves and their family.”

“Those who can’t work will be always supported, but those who can work have the responsibility to do so. “

“I believe very firmly that it is wrong to penalise those who work hard and do the right thing while rewarding those who can work, but don’t.”

In this version of reality (which Cameron may actually believe), it’s not necessarily the people that are to blame, but the evil system which makes people ‘dependent’, even rewarding them for “not making the right choices”.

So the system is immoral and must be ‘reformed’ to ‘make work pay’ and create the right incentives to ‘work hard and get on’. This is classic conservative moral framing, but what Cameron doesn’t mention is the enormous elephant in the room – jobs (or lack of them).

I might have some sympathy with Cameron’s position if there were more job vacancies than people looking for work, and those people were turning down work left, right and centre, but the maths just isn’t in Cameron’s favour. We’ve got around 4.5 million people without a job who want on and over a million more in part time work who’d like a full time job. At the same time, there are just half a million vacancies. Against those numbers, if you cut the amount of money people receive in social security benefits they will just get poorer. They can’t find jobs that don’t exist no matter how hard they try.

So to re-state Cameron’s case: when people stand on their own two feet, work hard and do the right thing, they will succeed, but the evil welfare system makes people lazy and dependent so must be weakened.

So how could we frame this differently? I always think Owen Jones is on to something when I hearing him talk about housing benefit. When is a discussion about how we need to get the housing benefit bill down, he just agrees strongly, but says it should be done by tackling private sector rents and building more houses. Housing benefit should be reframed therefore as landlord benefit. People don’t like feeling like they are being screwed, but anyone who is renting privately strongly suspects they are being. Jones hasn’t quite got his delivery down though I don’t think. It’s a bit machine gun with too much spraying of facts and figures, which probably won’t change anyone’s mind. I think his overall strategy is sound though.

On the welfare system as a whole I think the reframing might go something like this.

“The welfare system needs updating for the 21st Century, but to do so we need to understand the problems. The welfare state we know today was established under the assumption of full employment. That assumption no longer holds. There are simply not enough jobs. We need to rediscover what full employment means and government has a big role to play in that. Young people need paid work experience. People who’ve been out of work for a long time need a chance to get back into the workplace and update their skills. The private sector has consistently failed to perform in this regard, so where the private sector can’t or won’t offer these opportunities, government can and should. As Keynes said:

“The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years…

It’s time to unfuddle our heads. When we talk about people having a responsibility to work if they can, so government has a responsibility to ensure that work is available and that it pays well enough to sustain people in a lifestyle appropriate for a rich country.”

I’ll finish this with a quote from a recent Jack Monroe article which is a pretty good antidote to this ‘work hard and get on’ nonsense:

“Poverty can happen to anyone. That’s why I unsettle some of the stalwarts of the Tory party. Because their rhetoric of “work hard and get on” can fall apart in the blink of an eye. I worked hard. I got on. And I still spent a year and a half scrabbling around in a festering pit of depression, joblessness, benefit delays and suspensions, hunger, and the entrenched, gut-wrenching fear that I was failing as a parent.”


“Are budget deficits or surpluses good or bad?”

Here’s another extract from a recent “Billy Blog” by economist Bill Mitchell on “MMT Budgetary Principles“. The context to this as Bill writes is:

“This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. This blog provides some general principles that should govern the design of a budget.”

Bill is an Aussie, and is writing here for a home audience, but the following extract is equally applicable to the UK economy (or the US, Canada etc). It cuts right through the usual fact-free ruminations about the deficit which we are subjected to on a daily basis.

“Are budget deficits or surpluses good or bad?

The budget balance has no meaning as a standalone aggregate. What does a $A30 billion federal deficit mean? Nothing in itself. What does a deficit of 2 per cent of GDP mean? Only that the deficit is 2 per cent of current price GDP. Is a deficit that is 2 per cent of GDP better or worse than one that is 4 per cent of GDP? The answer it that it all depends.

The higher deficit figure might be the exemplar of fiscally responsible policy choices whereas the lower outcome might indicate fiscally irresponsible decisions. Or, the opposite might be the case, depending on the circumstances.

There is nothing intrinsically good or bad about any specific budget outcome.

In response to the 1982 attempt by conservative politicians to pass a Balanced Budget Act in the US Congress, the revered macroeconomist Gardner Ackley said:

“My own position on deficits has always been, and remains,      that deficits, per se, are neither good nor bad. There are times when they are not only appropriate but even highly desirable, and there are times when they are inappropriate and dangerous. During a recession or a period of “stagflation”, deficits are nearly unavoidable, and are likely to be constructive rather than harmful.”

…It is not the government’s role to run deficits or surpluses. We want governments to make policy choices that will maximise the potential of the people to enjoy their lives and contribute the best they can, given their own circumstances to the well-being of society and the planet.

We might call this goal one of public purpose. An essential element of that goal, given current cultural morays in most nations, will be to ensure that everyone who wants to work has a job and for those that are unable to work, for whatever reason, have adequate income support so they are not alienated and socially-excluded.

That goal is constrained by the availability of real resources that the nation commands – labour, capital, land, etc – but not by the financial capacity of the currency-issuing government.”

Do read the whole thing here. If you want to learn about economics and the current mess we are in, you could do a lot worse than spend a few hours browsing Bill’s blogging back catalogue.

Keynes on Full Employment

I came across this quote by Keynes today here and thought I would share it. It’s from a pamphlet written to support Lloyd George in the 1929 general election. It’s message should still resonate today, and serves as a useful reminder that Liberals were not always supporters of junk economics. Their political descendants the Liberal Democrats should take note:

“The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years… Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.”


The Big Picture – What Government should do and why they are doing the opposite

With Governments around the world now wedded to austerity, it’s easy to lose sight of what the overall goal of economic policy should be. At the moment, the goal seems to be ‘deal with the debt’, ‘pay down the deficit’ (whatever that means). We have stopped asking why austerity is necessary and kind of accepted it as a fact of life. Sure we don’t like it, but there’s no alternative right? Maybe we could raise taxes on the rich a bit more, or go after tax dodging more, but ultimately, that deficit must come down or the sky will fall in.

There is a general consensus about this right across the political spectrum, and – after being bombarded by over two years of propaganda – amongst the public at large. But should economic policy be all about ‘deficit reduction’ with only token nods to ‘policies for growth’? I think not. Thinking big picture, here are the three things most economists would consider the goal of macroeconomic policy to be (feel free to disagree):

1. Full employment – everyone who wants a job has one, or there is one job vacancy for every jobseeker (at the moment there is only 1 for every 5!)

2. Stable prices. This means a stable (not necessarily low) rate of inflation. Economists would define inflation as a general rise in prices. This includes wages. If prices rise more than wages, that is more a rise in the cost of living than inflation. So if wages and prices both rose by 5% per year, that would be considered quite high inflation, but if it was stable at 5%, this would not be too much of a problem, because households and business could make decisions about the future with more confidence.

3. A highly productive economy. The economy is producing close to the maximum it can achieve with the resources it has available (while not trashing the environment).

You would have thought that our politicians would be advocating policies that contributed towards those aims, but if you look at what austerity is actually achieving, it seems to be the exact opposite of the three points above:

  •  High unemployment
  •  Unstable prices – first prices rising quickly (but not wages), then falling back to the point where deflation becomes a real possibility.
  • Falling productivity – the wealth produced per hour worked is falling.

So why are our policy-makers still dead set on austerity? There are two reasons I can think of. Either could be true (or indeed a combination of the 2):

  1. They know austerity doesn’t work, but the people who they really serve (those at the top) do quite well out of austerity. It increases inequality, thus ensuring the top 1% have a greater share of the (albeit smaller) pie.
  2. They are morons who honestly don’t know any better, either for ideological reasons (most Tories), or just pure ignorance (Nick Clegg, Danny Alexander).

At the moment I tend to believe option 2, but as more data comes in in 2013, if no change in policy is forthcoming, then option 1 will start to look more likely.

Achieving full employment with a job guarantee

The Labour Party launched a new website today called “Your Britain“. On the home page it says:

“This is the online home of Labour ideas and policy development. By joining in you can play a part in developing our next manifesto.”

I’m not a Labour Party member, never have been, but boy do we need a strong opposition at the moment. I don’t feel we have one now, but this new site seems like a good idea, and non-members are allowed to contribute, so I thought I would “join the debate” as they say and post a policy idea. My idea (not my idea, but the idea I put forward), was for a full job guarantee as advocated by proponents of MMT. Here is what I submitted. Not hopeful it will do any good, but with a bit of luck, someone might read it and want to find out more:

“At the moment, we are in the middle of an unemployment crisis. The financial crisis led to a sharp increase in unemployment, and while unemployment has fallen since it’s peak, at current rates of change, it will take at least 10 years before unemployment reaches pre-crisis levels. I don’t think it is acceptable that we should have to wait that long.

At the moment, when people are made unemployed, they have the welfare state to fall back on. While prevailing wisdom seems to be that our welfare state is overly generous, and discourages work, those actually dependent upon it know otherwise. I think we can do a lot better. Instead of paying people not to work, I propose the introduction of a full job guarantee.

In essence this would mean creating the offer of employment, paid at the living wage, to anyone willing and able to work. The Government would pay the wage, but the task of creating appropriate job opportunities would fall on local government and the thrid sector. The Future Jobs Fund demonstrated that there is no shortage of worthwhile work in the community to be done, and this ethos could be built on and expanded with a job guarantee.

As the jobs would pay a living wage, this would become the de facto minimum wage without the need for legislation. Private sector employers would need to offer attractive wages and/or terms and conditions in order to hire from the pool of job guarantee workers, but in return, they would be recruiting job ready, motivated workers with the basic skills so many employers claim people are lacking at present.

People would be able to remain in their job guarantee jobs indefinitely, but the focus would be on providing the individuals with the skills and training required to transition to jobs in the private or regular public sectors. While the jobs would pay a living wage, there would be no prospect of promotion or a pay rise while the individual remained in the job guarantee job, thus encouraging workers to seek work outside the job guarantee.

The size of the pool of job guarantee workers would depend upon the state of the economy. That is to say it would operate in a counter-cyclical manner. When the economy is weak, the job guarantee would expand. When it recovers the job guarantee pool would contract.

This policy would be affordable. For a net cost of around 1% of GDP per annum (and significantly less once the economy strengthens), we could have genuine full employment in this country for the first time in over 40 years.

A job guarantee would act as a beefed up automatic stabiliser, so that when the next recession hits, it will be much less painful, and the recovery much more swift.

This would be a true growth policy as eliminating involuntary unemployment would eliminate millions of wasted man hours per year and enable us to produce near maximum potential output.”

Here’s the link:

The Work Programme. Is this the best we can do?

“…we’re overturning the convention of recent times: the idea that it’s governments that create jobs. No, they don’t – businesses do.”

David Cameron writing in the Daily Mail, 1 Oct, 2011

When the coalition took power in May 2010, one of their first acts was to scrap Labour’s Future Jobs Fund and to announce they were replacing it and all other Labour unemployment programmes with a cheaper alternative – The Work Programme.

The success of the Work Programme depends upon (mainly) lead private sector welfare to work companies helping the long term unemployed find work. They have a great deal of flexibility in the methods they use to achieve this, and the Work Programme is compulsory once someone has been unemployed for 12 months (and earlier for young people). They are paid on the basis of payment by results.

The only problem is that the Work Programme does not seem to be working (e.g. see here and here) and many of the organisations involved are starting to have doubts their continuing involvement. The Government insists all is well, but they have been very coy about releasing official data on performance.

The basic problem with the Work Programme can be explained with the following simple analogy. Imagine there are 100 dogs and I bury 95 bones in the ground and send the dogs out to find them. It’s easy to see that at least 5 dogs will return without a bone. In order to improve their chances of finding a bone, I might provide some extra training to the 5(+) dogs who came back empty-pawed. Now when I rebury the bones, the dogs that I trained come back with a bone. Unfortunately 5 other dogs returned without a bone. No matter how much training I give the dogs, as long as there are only 95 bones,  there will always be some dogs who cannot find a bone. The only solution then is for me to bury an extra 5 bones*.

The Work Programme however, does not create any jobs (other than for a few thousand ’employment advisors’ and contract managers), and can only ‘shuffle’ the unemployed. Some will find work, but only at the expense of others.

The Work Programme is what economists would call a supply side policy. The idea is that unemployed people lack the skills and/or attitude that employers are looking for and if these attributes can be instilled into those looking for work, the private sector will jump at the chance to hire them. You hear this a lot from  Government and in the media. This misses the wood for the trees though. The problem not that the unemployed are not employable (though some may be). The problem is a lack of jobs. The Work Programme cannot address this problem.

This post began with a quote from David Cameron, because there seems to be a prevailing view that only the private sector can create jobs (though hundreds of thousands of doctors, nurses, teachers etc might disagree). Private sector good, public sector bad. Because of this, our politicians fiddle with schemes like the Work Programme, while all around them millions of people are unable to find work. Think of the lost potential! The young people leaving school and university with little of no prospect of a fulfilling career. Imagine how much more prosperous we could be as nation if we could just put those unused resources to work!

So to return to the title of this post, is the Work Programme the best we can do to address our unemployment crisis? I think not only can we do better, we must do better, and a failure to act represents a gross dereliction of duty by our Government.

So what could we do? My last post tackled the canard that “There’s no money left”. Armed with the knowledge that this is not true, what policy options are there?

One option would be to just do what a lot of commentators on the left are advocating at the moment – to raise demand through increased spending on capital projects or reduced taxation on low earners. Without question, that would reduce unemployment quickly, but there would come a point where the impact would reduce as the new jobs would be unevenly spread around the country and large capital projects tend to require higher skills nowadays. For example, in the 30s, the WPA in the US provided millions of jobs to low skilled workers on ‘shovel-ready’ projects. Today, sophisticated machinery does the job that in the past was done by hand.

The option I prefer is called a Job Guarantee (JG) or Employer of Last Resort (ELR). This is a concept proposed by Minsky and expanded upon and developed by economists from a branch of economics know as Modern Monetary Theory. For more scholarly articles, I recommend reading this comprehensive explanation of the JG, or a series of articles which can be found at the Levy Institute here.

What is a JG/ELR then? In simple terms, it is a backstop provided by the government. The government would provide the funding to provide a job for everyone who is willing and able to work, but who cannot find a job in the private sector or regular public sector. While central government would provide the funding, the jobs could actually be created in the voluntary sector or local government, doing work which provides community benefit. There are almost limitless types of work which could be provided which the private sector for whatever reason do not find profitable. Just because they are not profitable, doesn’t mean they are not socially useful. Examples of jobs would be caring for the elderly, community gardening, youth work, sports coaching, music lessons, after school clubs and many, many more.

The JG wage could start at the minimum wage and be gradually increased to a living wage level. In effect, the JG wage would become the de facto minimum wage. Any employer trying to pay less would be unable to recruit staff. This could mean some low wage work becomes no longer profitable. These will tend to be the worst jobs in society, so in general, that would be a good thing.

JG jobs could come with accredited training so that workers can build the skills necessary to transition to permanent work elsewhere. Jobs suitable for those looking to return to work after a period out of the labour market due to ill health could also be created. A JG could operate alongside existing benefits so the decision to take a JG job would be entirely up to the individual. It may be that they would prefer to look for a regular job whilst remaining on benefits.That would be fine.

As well as being a path the full employment, a JG would mean that booms and busts would be shallower. At the moment, when a recession hits, things economists call automatic stabilisers kick in. This means tax receipts fall and out of work benefits rise and this stops the economy from falling into the abyss. The problem is, at the moment the automatic stabilisers are not powerful enough to reignite the economy. A JG would change this by lessening the severity of the slump. The size of the pool or JG workers would rise and fall depending on the state of the economy. In recession, the pool would be large, but as the economy recovers, the majority would transition back to regular jobs.

Another macroeconomic impact would be to ensure a modicum of price stability. At the moment, economists and politicians place a great deal of emphasis on inflation. The Bank of England has a target for inflation of 2.5% and Mervyn King must write a letter to George Osborne every month that inflation exceeds that target (he’s been writing a lot of letters lately).

The trouble is, as the economy starts to reach full capacity, the risks of inflation increase. Mainstream economists believe that there is a trade-off between inflation and unemployment, which is the main reason why we haven’t had true full employment for about 40 years. Keeping unemployment above a certain threshold has been deliberate. A JG changes this because the JG sets a floor on wages which prevents wages elsewhere in the economy from rising too fast as the economy reaches full capacity. So we can have full employment and price stability. At the moment there is a belief that it is either all, and price stability is considered more important.

I want to finish with a quote from Michal Kalecki’s masterful 1943 essay “Political Aspects of Full Employment” (I highly recommend reading the whole thing which can be accessed here):

A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports.

So we already know how to achieve the goal of full employment. It is practical and affordable. We just need the political will and determination to get there. The Labour Party are currently doing a lot of soul searching to try to win back the support of the British people, but if they truly want to become the party of working people again, they need to get serious about full employment. There have been some promising noises from certain quarters. The IPPR, supported by David Miliband back a type of JG for young people and those unemployed for over 12 months, but it lacks ambition. They need to be braver. They need to be bolder.

PS. There is a very good video here of a presentation given by Bill Mitchell (one of the architects of the JG concept) to the European Commission’s recent “Jobs for Europe” conference. It’s encouraging these ideas are being discussed at this level. The video’s about 25 minutes long. It’s well worth a watch.

*For a more detailed version of the dogs and bones example, see this post by Bill Mitchell.